Financings of the Fortnight’s Pot Luck Supper vs Food for Thought from Tauzin and Kindler

This week we’ve got a little bit of everything out there for you FOTFanatics. Corporate Venture? Of course. Meaty FOPO? You got it. Odd restructuring? Why not. Sexy SEDA? Your wish is our command. And unlike last fortnight’s Eurolicious entourage, this week we feature some All-American talent. And a Canadian.

These guys--and their investors--obviously didn’t get the memo from PhRMA honcho Billy Tauzin and Pfizer CEO Jeff Kindle, who spent their podium time at yesterday’s Partnering For Cures meeting publicly worrying about the state of the States’ hospitality to the biopharma industry.

Tauzin woke us up as he railed at the state of the Food and Drug Administration, noting the regulator was no longer the premier drug agency in the world (that’d be EMEA, if you’re wondering); FDA didn’t take all the blame of course, to Tauzin some of its ineptitude was the fault of Congressional indifference. Meanwhile, someone please buy Margaret Hamburg and co. a DVD player, or maybe a TiVo?

"12:00 is blinking on a VCR at FDA, they are that far behind technologically," observed Tauzin. (No word on whether FDAers were sporting neon leg warmers while listening to Whitesnake while wearing out their Betamax copy of Top Gun on said VCR, but that’s what we were thinking.)

[NOTE: Keep your eyes peeled for coverage out of Windhover's ongoing FDA/CMS Summit in Washington, where FDA's John Jenkins just coincidentally unpacked and disputed the argument that FDA is more 'conservative' than EMEA.]

Other panelists at the breakfast session walked back the criticism. Bob Beall, president and CEO of the Cystic Fibrosis Foundation, commended FDA for its progress in clinical trials in the rare diseases space, noting that any path forward with the agency should begin with direct dialogue and not with confrontation, and not with Congress passing laws to tell it what to do.

And the earlier that dialogue begins, the better. With regards to personalized medicine, for example, he noted that a company can’t wait ‘til Phase III, or even IND stage, to start a discussion about biomarkers. He did lament the status of inter-agency harmonization between EMEA and FDA, but in the end with a wave in Tauzin’s direction said “I’m optimistic about the FDA.”

Founder and CEO of the Multiple Myeloma Research Foundation Kathy Giusti agreed with Beall. FDA, she said, had been “phenomenal.” And using an age-old technique she later suggested if only foundations could get academic and industry attorneys on the same page with contract language “we can all start using,” things would be so much better. As with most remarks that blame the lawyers, those words received a round of applause.

But in any case we shouldn’t be surprised when everyone relocates to Singapore, seemed to be part of the message from Tauzin. That’s something Pfizer’s Jeff Kindler alluded to as well.

During Partnering for Cures' lunch-time session, Kindler, fresh off the “pharma needs to own up to its mistakes to regain public trust” circuit of interviews and talks, sat down with FasterCures founder Michael Milken to discuss Pfizer’s attempts to shorten the timeframe of the drug discovery-development continuum.

Along the way he discussed some of Pfizer’s impressive feats—the creation of HIV specialist ViiV Health Care with competitor GSK, for example, or this week’s deal with Israeli biotech Protalix for its Gaucher’s disease treatment (we’ll leave it til tomorrow’s Deals of the Week to get in-depth on that one).

But he repeatedly invoked the strides made in emerging markets and industry hubs like China and Singapore to speed up clinical trial recruitment, for example. We in the US “have to be mindful of the fact that there are a lot of advances being made in other countries that are very interested in having those clinical trials done there, and that’s where a lot of innovation is going to occur. I think that’s where the big opportunity for speeding up bringing medicines to patients is.”

He later noted that governments in some emerging markets “are very ambitious and aggressive” in beginning to meet the unmet medical needs of their populations and “in encouraging innovation and research and providing incentives for companies like ourselves to locate manufacturing, research and clinical trials in those countries.” In case the message wasn’t clear he added: “And are doing so I might add in many cases with a coherent government/business collaboration that quite candidly we’re not seeing as much of in the United States as we’d like.”

He went on to talk about how China has headhunted Chinese-born young, ambitious, and eager scientists based in the US and elsewhere to return and set up shop in places like Shanghai’s Zhangjiang Park and elsewhere. This migration is “something we need to take account of as US policies are adopted that can have an impact on our ability to support what I consider to be a very important American industry,” he said.

Read more about Kindler’s remarks in today’s Pink Sheet DAILY (and for more on Pfizer's activity in China, see this IN VIVO feature). Then fly the flag for the companies below, this fortnight’s fancy financing phenomena. It’s …


Forma Therapeutics: It’s not that often you see a start-up raise more than $50 million in venture capital and pen two notable alliances with pharma companies within one year, but Forma Therapeutics has managed to do just that. The biotech—which according to this recent profile in START-UP may be onto a winner with its combination of structure-guided cancer drug discovery and proprietary cell-based screening capabilities—pulled in $25.5 million through a Series B financing led by Lilly Ventures (more corporate venture!), announced on December 1. Also participating were Novartis Option Fund and Bio*One Capital, investors in Forma’s January 2009 $25 million Series A. Forma has deals with Novartis (in oncology, signed shortly after it’s A round) and Cubist Pharmaceuticals (antibacterials). The latter deal included a note that converted into stock in the current Series B.—Amanda Micklus

Receptos: The $25 million Series A financing for newly formed Receptos is not as simple as it first appears. The San Diego firm targets GPCRs and described its initial financing as a two-tranche deal, $17 million now, maybe $8 million later. The full story is that Receptos purchased Apoptos, which had raised $28 million in its own relatively recent Series A in January 2008 (so it's more of a reinvention). Roughly $5 million left from that financing was included as part of the first tranche of Receptos’ round – along with $12 million from the company’s venture backers, explained Jim Schmidt, VP of finance and administration. Receptos can qualify to receive the second tranche of $8 million upon the filing of an IND for its lead candidate – a sphingosine-1-phosphate receptor candidate for multiple sclerosis. That filing is expected by the fourth quarter of 2010, says Chrysa Mineo, VP of corporate development. Participants in the new round were Venrock, ARCH Venture Partners, Flagship Ventures and Lilly Ventures. (There’s that corporate venture again!) Each of those funds received a seat on the Receptos board, with Venrock’s representative, former Biogen Idec Executive Chairman William Rastetter, serving as CEO and chairman.—Joseph Haas

Vertex Pharmaceuticals: According to Elsevier’s Strategic Transactions database, follow-on public offerings have increased substantially from a low of $3 million in the fourth quarter of 2008 all the way up to $1.6 billion in the third quarter of this year. While final fourth quarter numbers are not yet available, it looks to be on pace to beat Q3 thanks to a few big FOPOs completed this fortnight by Salix Pharmaceuticals ($128 million), Human Genome Sciences ($415 million), and namely yesterday’s $442.8 million stock sale by Vertex Pharmaceuticals. The small-molecule drug developer, which focuses on several therapeutic areas including infectious diseases, offered 11.5 million shares at $38.50, a price on par with what the company has been trading at for the past few weeks. The stock jumped 8% to $36.15 on November 2--and has been gradually increasing since then into the high $30s/low $40s--following news that 83% of HCV patients in each arm of Vertex’s C208 study had achieved a sustained-viral response with twice-daily telaprevir. Vertex is planning an NDA for the HCV protease inhibitor in the second half of 2010. Less than two months ago, the company monetized future European milestones it would have gotten from telaprevir partner Janssen in a deal with four investment funds, which bought $120 million in Vertex convertible debt and paid another $35 million cash in exchange for $250 million in regulatory and launch milestones. Earlier this year, Vertex completed another huge follow-on offering, which netted $314 million. Since 2008, the company has raised $1.4 billion through four FOPOs.--AM

Labopharm: The public markets are slowly warming to biotech—note Vertex and HGSI’s monster $400 million public offerings, UCB’s €500mm bond offering and Movetis’s announcement that it closed its IPO, bringing in €85m (with the overallotment yet to be determined). But for many of the smaller players capital is still a scarcity, making alternate financing arrangements like Labopharm’s $25 million standby equity distribution agreement (add SEDA to your bin of acronyms to name drop this holiday season) with Yorkville Advisors, an attractive prospect. Under the terms of the agreement, YA will provide up to $25 million during the next three years, available at Labopharm’s discretion via the purchase of new shares, issued at a predetermined discount (that maxes at 5%) to the prevailing stock price. In addition, limits prevent YA from owning more than 19.9% of Labopharm’s issued and outstanding common shares at any one time. The control offered by the SEDA—in addition to the biotech determining when to pull the trigger, it also determines the amount to draw down, with a built-in minimum price—is clearly attractive to smaller biotechs or specialty pharmas who might have cash-generating milestones on the horizon while simultaneously lacking the in-house resources to reach those events. The Quebec, Canada-based Labopharm fits the bill. The company had just over $14 million in cash and cash equivalents at the end of its third quarter, as well as roughly $21 million in long term debt payable starting in 2012. In addition, the company is preparing for the 2011 launch of its second product, DDS-04A, which is a once daily-formulation of the serotonin antagonist reuptake inhibitor traszadone that is currently awaiting a regulatory decision from FDA. In the SEDA-world (it’s not an obscure planet in a galaxy far, far, away) Yorkville has been an active player. This year alone, the company has inked SEDAs with Advanced Life Sciences, RXI Pharmaceuticals, Pharming, and Achillion. –Ellen Foster Licking

image from flickr user Jamie Anderson used under a creative commons license.

Notes From BIO: Josh Boger Goes Back to Merck

Okay, no, this isn't a news flash. We don't have a scoop on what Vertex' outgoing CEO Josh Boger plans to do once he officially leaves the company he founded at the end of this week. And we certainly aren't predicting that he will return to Merck, where he began his career in pharmaceutical R&D before leaving to found Vertex in 1989.

But we do know what Boger did when it was time to step down as chairman of the Biotechnology Industry Organization: he returned to the legendary vision statement offered by George Merck in 1950, which served as the touchstone for Merck's vision of leadership for the rest of the 20th Century.

George Merck's famous advice--usually paraphrased as "putting patients first"--is not just a slogan, Boger observed, but a business plan, complete with the assertion that the "better" industry remembers that medicine is "for the people...not for the profits," the better the profit ultimately is.

It is also a mission statement for the future: "We cannot rest until the way has been found to bring our finest achievements to everyone."

DotW: Pink Is The New Black

It's official. Pink is the new black. Any doubt, look at the week's most depressing news item: the U.S. government's announcement that 651,000 jobs disappeared in February.

These days everyone knows someone touched by the rapidly deteriorating economy. We are all frugalistas (frugalistos?) now.

The blogosphere has errupted with sites outlining helpful hints for the newly unemployed, designed to help curb spending and add meaning when someone's work identity is in flux. One of our favorites: 100 Creative, Painless (and Even Therapeutic) Ways to Downsize Your Life After a Layoff.

Pharma types could learn a lot from the site, which includes the following suggestions: hold a garage sale; consider a smaller house; use less or reuse. In our lexicon that could be reworded to mean monetize unwanted assets (aka outlicense), accept that your company may need to downsize instead of growing larger (the anti-Pfizer strategy made manifest by BMS), jettison R&D (Sanofi and Valeant are the first to admit they might need less internal research), and utilize a stable of technologies to find new uses for old drugs (an homage to the reprofilers!).

Our own personal favorites from the top 100 suggestions:

58. Discover community theater. Pfi-eth, Roche/Genentech, preemption, the hunt for an FDA commish, and the fall-out from Obama's healthcare budget all seem to apply if you are looking for a biopharma-centric spin to performance art.

45. Collect coins, as in make a game of finding coins on dressers, the floor, or the street, collect them, and deposit them in the bank (Roche are you listening? It's one way to find the extra $4 billion you need for your $93-a-share bid for Genentech).

43. Surfing the internet. As long as it includes a visit to IVB and Deals of the Week, of course.


Pfizer/Aurobindo: A year after signing a smaller arrangement with the Indian generics firm, Pfizer signed up again with Aurobindo to sell up to 60 generics, primarily in the U.S. but also in Europe. (We’re not exactly sure what this means for Aurobindo, incidentally — since it also has a growing U.S. presence.) The whole thing is an expansion of Pfizer’s “mature products” strategy — an idea initially articulated as a way of squeezing more profits out of existing drugs largely by selling brands into emerging markets. Such a strategy wouldn’t change the pharma business model fundamentally: Pfizer would still use detail reps to sell brands and the brands, although lots cheaper than they’d be as patented U.S. drugs, would still net some premium. The idea isn’t unique to Pfizer: Sanofi-Aventis acquired Zentiva to sell generics in Eastern Europe, while GlaxoSmithKline teamed up with South African generics company Aspen to sell generics in emerging markets. But Pfizer now is moving wholesale into the U.S. generics business. With the Aurobindo deal, it’ll have approximately 120 generic drugs to sell (injectable and oral) in the U.S. – better than one-third of Teva’s list. Why the relative shift in geographic emphasis? Pfizer’s seen the power of generics to interrupt its own U.S. business (Lipitor U.S. sales fell 12% last year, largely because generic simvastatin has been eating its lunch; even its apparently fast-growing Lyrica has been hobbled by the managed-care driven popularity of its generic predecessor, gabapentin, despite its worse label for pain). And the apparent re-emphasis also may reflect rising pessimism about the health of emerging markets, where the economies have been hurt a lot more than in the U.S by the global crisis. Meanwhile, there’s no question about the health of the U.S. generics market. The problem is that Pfizer now is going directly into competition with companies like Teva, Watson and Mylan, and without an obvious strategic or tactical advantage compared to companies that have been built for the high speeds and narrow margins of the generics world. The generics strategy hasn’t worked wonderfully elsewhere, investors point out — Novartis never has made Sandoz into a top generics performer, despite its size. We see it as further evidence that Pfizer is trying to recreate itself as a truly industrial company, a value stock, with modest if predictable top line growth boosted into less modest bottom line growth by strict limits on the expense line. (You can read more about our thesis in the February issue of IN VIVO.)--Roger Longman.

Pfizer/Bausch & Lomb: But Pfizer's diversification strategy isn't limited to generics. On the same day it announced its deal with Aurobindo, it also announced a U.S. co-promotion tie-up in ophthalmology drugs with privately-held Bausch & Lomb. In an environment in which pharma companies are looking to cut costs and retool selling strategies, the co-promotion offers the opportunity for the two organizations to consolidate their commercial structure without sacrificing breadth and reach. The partnership will market Pfizer’s Xalatan, which tallied total sales of $1.75 billion last year, including $536 million in the U.S., with B&L’s Alrex, Lotemax and Zylet. Pfizer also gets a piece of B&L’s bacterial conjunctivitis candidate Optura, which sailed through an FDA Dermatologic and Ophthalmic Drugs Advisory Committee meeting in December. FDA action on the NDA is expected this quarter--Jessica Merrill.

Vertex/ViroChem: As Vertex anticipates bringing its protease inhibitor for hepatitis C, telaprevir, to market, it expanded its HCV pipeline March 3 with the purchase of privately-held Canadian biotech ViroChem. In the process, the Cambridge, Mass., biotech gained a pair of Phase I polymerase inhibitors. But they didn't come cheap: Vertex reportedly had to beat several competitors for the acquisition, eventually paying $100 up-front and issuing 9.9 million new common shares of its stock, pushing thetotal deal value to nearly $340 million. “It was a really competitive process and there were many large pharma companies that were looking at this with us,” Vertex Chief Commercial Office Kurt Graves told "The Pink Sheet" DAILY. The relationship the two companies built, combined with telaprevir’s lead in the HCV protease inhibitor race, gave Vertex a big advantage, he added. Graves cited several strategic underpinnings for the deal, including the ability of the ViroChem drugs' to enhance the lifecycle of telaprevir-based regimens, establishing the foundation for a franchise of specifically targeted antiviral therapy combinations in HCV that can displace the current standard of care ribavirin and peg-interferon. Of the two ViroChem compounds, Vertex seems most interested in VCH-222, which in a five-patient, three-day trial showed the most substantial viral-load reduction seen so far with an investigational polymerase inhibitor for HCV. Telaprevir and ‘222 are complementary in safety, Vertex says, because they are metabolized differently, and the biotech hopes to begin combination therapy study of the two compounds later this year--Joseph Haas.

Sanofi-Aventis/AEterna-Zentaris: Sanofi-Aventis is hoping to add to its bag of tricks in the U.S. market with a co-development and commercialization deal announced today with AEterna Zentaris. Sanofi gains rights to AEZ’s injectable cetrorelix pamoate, a leutenizing releasing hormone antagonist in Phase III development for benign prostatic hyperplasia. AEZ will receive $30 million up-front and stands to gain up to $135 million in regulatory and commercial milestone payments, plus an escalating double-digit royalty on net U.S. sales; it also will complete the current Phase III program — three Phase III trials involving more than 1,600 patients with symptomatic BPH in Canada, the U.S. and Europe — and handle the NDA submission. Sanofi is responsible for post-marketing studies and AEZ will have access to any data from Phase IIIb and IV clinical trials for use elsewhere, while hanging onto “certain” U.S. co-promotion rights as well. For AEZ, the move provides some additional cash to get cetrorelix across the finish line in BPH. (Cetrorelix acetate is already marketed as Cetrotide by Merck Serono ex-Japan [Shionogi in Japan] to prevent premature ovulation in women undergoing in-vitro fertilization.) The Canadian biotech had sold off non-core assets in 2008 to raise cash to fund the compound’s pivotal BPH program and an earlier-stage oncology candidate, and nearly was down to its last few Loonies when it inked a deal last fall with Cowen Healthcare Royalty Partners bringing in $52.5 million in exchange for AEZ’s royalty income from fertility sales. AEZ shares spiked more than 50 percent on the deal news, but the firm’s market cap remains anemic at about $57 million--Chris Morrison.

Pharmexa/Affitech: Eager not to miss out on the high-value antibody shopping that big pharma have indulged in over the last few years, Norwegian private group Affitech is reverse-merging into Denmark’s listed Pharmexa. The idea is to create a fully-integrated antibody group quickly, combining Affitech’s phage-display-based antibody discovery technology and expertise (similar to that used by CAT, acquired for about $1 billion in 2006 by AstraZeneca) with Pharmexa’s immunology and product-development skills, hitherto focused on vaccines . The new company, to be called Affitech and headquartered at Pharmexa, will be listed on the Nasdaq OMX Copenhagen exchange and owned 70 percent by Affitech shareholders, 30 percent by Pharmexa. Standalone Affitech didn’t have the development capability likely to attract Big Pharma partnerships or acquisitions—they want technology and product candidates. That helps explain why certain antibody companies, including Dyax and Sweden’s BioInvent, haven’t been snapped up: they started product development relatively late. So Affitech needed a quick way to fix the situation—since its shareholders, some of which have been around since 1999, were starting to get itchy for an exit. “Organic growth would have taken too long,” says Affitech’s CEO Martin Welschof, who will become Chief Technology Officer of the new group. He claims the company already is discussing potential partnerships, but not a trade sale — at least, not quite yet--Melanie Senior.

Novartis/Proteon: Anyone following IVB's twitter feed know that corporate venture financings have been prominent news lately. This week came news that the MPM BIO IV NVS Strategic fund, Novartis' corporate venture gambit with MPM Capital, invested in the $38 million Series B financing of Proteon. Similar to other recent MPM/Novartis deals, the financing gives Novartis the option either to buy the Waltham, Mass.-based biotech or acquire a global license to said start-up's lead compound, PRT-201, at the conclusion of the recombinant human elastase's Phase II program. The drug currently is in Phase I/II studies in end-stage renal disease patients undergoing surgery for arteriovenous fistula creation. While specific details of Novartis' option were not disclosed, Proteon said acquisition and regulatory milestones could exceed $550 million. These kinds of option arrangements were tricky to negotiate just a few years ago. When VCs were flush with cash, many thought twice about signing off on a deal that capped the ultimate upside of a portfolio company. With Novartis taking an option on a significant program, what other pharmas would think seriously about acquiring said biotech at a premium? And what if they pharma didn't actually exercise the option? These kinds of agreements didn't protect the start-up in the event of such negative news. But in an environment where cash is king--and cash now is even more important--corporate venture groups looking to broker option-style deals ala Novartis might be gaining more leverage. Certainly this is the second deal in recent months for the MPM/Novartis group. In January, they invested in Peptimmune, with Novartis optioning worldwide development and commercialization rights to PI2301, a Phase Ib multiple sclerosis candidate.

(Image by flickr user my hobo soul used with permission through a creative commons license.)